Last updated: June 3, 2013 2:25 pm

Kaloti drives Dubai’s rising share of precious metals refining

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Emirati women look at jewellery displayed in a shop in the gold market of Dubai©AFP

Competititve materialism has become a target of the UAE's rulers

For Munir Alkaloti, it all started with the Abu Dhabi oil rush in the early 1960s. As the world’s leading oil companies descended on the Gulf emirate, their waste became another man’s treasure.

Mr Alkaloti, newly arrived from Jordan and with a mind for business, started to clear the yards for those oil majors – feasting on an abundance of scrap metal. The rule was simple, if the magnet in his pocket did not attract it, then it was worth money.

Beyond the yards, he even plundered an old shipwreck, shored on the beach of Abu Dhabi. “I was checking on the walls of the captain’s room and it didn’t catch the magnet, so I told the guys ‘let’s take the whole wall out,’ – it turned out to be [highly valuable] cupronickel.”

Now the Dubai-based Kaloti Jewellery Group claims to be one of the world’s largest gold and precious metals refiners and trading houses. Having begun life in the United Arab Emirates before company registration had even been introduced in the UAE, it’s now a driver of the emirate’s increasing share in the global refining market.

Kaloti’s growth has been fast. It was only after the return of Mr Alkaloti’s nephew, who had studied the art of refining of gold in Italy, that the company took to refining. When it first started, the special machine they used produced just 8 kilograms of gold a day.

By that time Mr Alkaloti had moved to Dubai and by the mid-1990s the family already ran the biggest jewellery factory in the UAE. It was only then “when we start noticing lots of traders from outside Dubai coming in, carrying raw gold . . . asking people if they can buy this kind of product.”

The gold came from mines in Africa. and north Africa. Banks from Europe also started to come in with the same idea, buying impure gold and looking for buyers. Mr Alkaloti saw the opportunity and ran with it.

While most companies suffered in Dubai during the global financial crisis gold was one of the biggest winners. “When there are crashes people go to gold as a reserve,” says Mr Alkaloti.

However, some of his customers did suffer and that had an impact on him. As popular tangible assets, some of his clients had exposure to both gold and real estate and when the property crisis hit in Dubai some delayed their payments.

One of those who allegedly skipped payment on about $60m has yet to be found while the trial against him continues in the UAE.

“That kind of thing happened during the crash, because of the real estate, not because of the gold. Gold was booming,” recalls Mr Alkaloti.

Conversely, it is the world pulling itself out of economic doom and gloom that may keep Mr Alkaloti awake at night.

While demand for jewellery has remained strong, institutional investors have been selling gold exchange traded funds since late last year. Gold demand was down 13 per cent in the first three months of the year, according to the World Gold Council. Buying of jewellery and coins has provided support for gold but analysts question how long the physical purchases will last.

Tom Kendall, precious metals strategist at Credit Suisse in London, said that a prolonged fall in gold prices would put pressure on refiners. “If you think, as we do, that this is more than a temporary blip in the 12-year bull market, then you’re likely to see mine supply contract, in which case there’s going to be too much refining capacity,” he says. “That suggests there will be a squeeze on margins across the whole business.”

Kaloti hopes to build on demand from India and China, as it sits in Dubai, accessible to both. According to the World Gold Council, Chinese demand rose 20 per cent in the first quarter, boosted by a 19 per cent rise in jewellery demand. In India, purchases increased 27 per cent, with demand up 15 per cent.

The company is building a new $60m refinery in Dubai – the biggest in the Middle East – that will have a capacity to produce up to 1,400 tons of gold and 600 tons of silver and other precious metals, tripling the size of Kaloti’s refining production.

The new plant will use both electrolysis technology for the highest quality gold and the more traditional aqua regia process for less pure gold refining.

Switzerland, home to companies such as Metalor Technologies, Pamp, Valcambi and Argor-Heraeus, remains the heart of the world’s refining markets. Other large refiners are based in South Africa, Germany, the UK and Japan.

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